The Globe and Mail reports in its Wednesday edition that the share prices of Canada's Big Six banks reached record highs after the banks finished posting quarterly financial results last week. The Globe's David Berman writes that bank stocks looked exceptionally cheap last year.
In March, 2020, bank stocks on average traded at just 7.4 times estimated earnings and one times book value per share. These valuations were well below historical averages.
What is more, dividend yields soared to an average of 6.4 per cent as stock prices tanked.
Today, the sector looks entirely different, as economic activity rebounds and the threat of loan defaults has begun to fade.
Valuations have recovered to their historical averages, or slightly above them. The group's price-to-earnings ratio is now at 11, versus a five-year average of 10.8, according to CIBC earnings estimates for 2022.
The price-to-book ratio is 1.8, or a bit higher than the five-year average of 1.7.
Analysts expect that the Big Six can deliver stronger profits as the economic recovery takes hold and businesses and consumers tap banks for more loans -- suggesting that investors can be rewarded for sticking with stocks that are no longer cheap.
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